Next week’s report by the Silk Commission on new financial powers for the Assembly threatens to be a Silk Cut that will leave Wales worse off, writes Swansea West MP Geraint Davies

On Monday the Silk Commission set up by the Coalition Government will pronounce on what borrowing and tax powers they believe the National Assembly should have.

Already, Chief Secretary Danny Alexander has said Wales can have borrowing powers.

So where’s the catch? After all instinctively in Wales we believe decisions are better made closer to home.

Quite simply Wales is shamefully underfunded in capital expenditure and we need to fight for our fair share instead of being sidetracked into a blind alley by the Coalition Government.

Historically Wales has received just 2.5% of transport funding – half the amount our "fair share" based on population. Most recently the Coalition Government has agreed to spend a massive £32.9bn on the High Speed 2 rail link between North and South England without giving Wales its fair share of £1.9bn.

But we need an east-west high speed link provided at the same time to ensure HS2 doesn’t divert inward investment destined for Wales into North England!

Meanwhile, the South Wales economy is being consistently undermined by the Seven Bridge toll which acts as a tax on inward investment and trade. So we suffer both from under-investment in our transport connectivity and face a tax on commerce at the gateway to South Wales.

To add insult to injury an enterprise zone in Bristol will provide business subsidy equivalent to that for all of the enterprise zones in Wales.

Meanwhile, discussions are afoot to use toll income from the bridge crossing as the revenue stream to pay for borrowing in Wales. But the borrowing capacity from bridge tolls is dwarfed by our fair share of UK capital funding and it would become a permanent brake on job creation in South Wales.

A recent report by the Welsh Government suggested that the toll currently costs the South Wales economy £107m and, to avoid the toll, 5% more traffic leaves Wales via the Bridge than arrives that way.

In fact, the impact of the toll is likely to be higher. When the Forth bridge had its £1 toll removed traffic immediately increased by 13%.

Many small businesses – like builders in Newport who don’t compete for jobs like re-tiling a roof in Bristol due to the toll – would immediately benefit from a lower toll. Our ambition to grow passenger numbers at Cardiff Airport would be given a real boost by a lower toll.

That’s why I have asked that the Treasury to commission a report to show how quickly the cost of removing the toll now would be recovered by higher income taxes and lower benefit costs from the new jobs it would create in South Wales.

At the very least the Government should signal to the business community its intention to reduce the toll by 75% (from £6 to £1.50 per car). This would cover ongoing operational and maintenance costs after the bridge franchise expires and debt is repaid.

The South Wales economy faces competition from similar sized city regions like Manchester yet it is unthinkable that Manchester would choose to undermine its regional economy by putting a toll on the M6 to fund capital projects.

This is a carefully calculated Conservative distraction from our principle interest of having free access to the South Wales economy and our fair share of capital funding.

Nobody should be surprised that the terms of reference for the Silk Commission are to improve the financial accountability of the Assembly (ie, to raise more money in Wales from a poorer tax base) consistent with UK fiscal objectives (ie, to not to give Wales any more money) that would have a wide degree of support (ie, dressed up as a victory for devolution).

So instead of addressing Wales’ underfunding from the Barnett formula and under-investment in infrastructure we are offered the chance to raise our own funds at higher interest costs and hang the debt round the necks of the Welsh people.

Perhaps it should be the Silk Cut report as what appears to be a popular activity ends up as lasting harm to Welsh jobs and growth.

As the toll income is the only serious candidate for repaying borrowing there is a real risk that this borrowing capacity will be used so that future Welsh Governments will not be in a position to reduce it and it becomes a permanent tax on inward investment in Wales.

In general, devolving tax and borrowing powers bring cross-border anomalies, distort incentives and confuse behaviour. In contrast, we need to reduce costs and uncertainty for inward investors to create jobs.

The Coalition offer is, "If you want or need more money then you can raise it yourself." Their perspective is that Wales generates £15bn less tax revenue than it spends so they want the focus taken off needs and fair shares and put on to "financial accountability".

Devolved tax and borrowing powers may be superficially attractive to the Welsh Government but taxes raised in Wales would come from a tax base that generates 70% of UK average "Gross Value Added" so a penny on income tax raises 30% less.

In addition, "block grant gearing" could mean some of the tax raised locally being taken off the block grant, so we could end up worse off.

Instead, our focus should be increasing our GVA through inward investment and job creation by marketing Wales as the best environment for business in terms of being the best place to live, an adaptable skilled population, cutting edge university research, ease of doing business and access.

To do so we need our share of the UK investment cake and not to hoodwinked by Tories bearing gifts.